Computer Fraud

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A federal court recently denied an insurer’s motion to dismiss an insured’s claim for declaratory relief. The insurer argued that the policyholder’s declaratory judgment claim was redundant of its breach of contract claim. The Court ruled that “redundancy is not grounds for dismissal under Rule 12(b)(6).”

In The United Church of Marco Island, Inc. v. Lexington Insurance Company , the policyholder, The United Church of Marco Island, Inc., fell victim to a $1.2 million fraud after a series of emails impersonating church officials and a Registered Financial Advisor who had a relationship with the Church resulted in the Church sending funds to an “illicit bank account.” The Church was able to recover $600,000 and sought coverage under its Commercial Crime Policy issued by Lexington Insurance Company for the remaining $600,000.
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Continue Reading Insurer Can’t Dismiss Church’s Claim for Declaratory Relief

A federal court recently found that a policyholder adequately plead that a loss of hundreds of thousands of dollars through wire fraud is covered under a commercial crime policy. In Landings, Yacht, Golf, and Tennis Club v. Travelers Casualty and Surety Company of America Case No. 2:22-cv-00459 , Landings Yacht, Golf, and Tennis Club (“Landings”) sued Travelers Casualty and Surety Company of America (“Travelers”) under a crime policy for denying coverage for: (1) about $6,885.79 in unauthorized withdrawals (“First Withdrawal”) from users purporting to be Landings and (2) $575,723.95 in withdrawals made by a third-party purporting to act on behalf of Landings (“Second Withdrawal”). …
Continue Reading Covered Members Only: Federal Court Accepts Yacht Club’s Wire Fraud Allegations

As businesses continue to increase their reliance on technology, they are bound to face the inevitable risks associated with online transactions and other cyber exposures. This, in turn, emphasizes the importance of having the proper insurance policies and compliance methods in place to prevent or, at least, mitigate losses that ensue from these risks. In this context, many insurance policies require that there be a “direct” loss for there to be coverage, which has spawned numerous lawsuits about what the word “direct” means. The latest court to weigh in has sided with the insured and interpreted that term broadly to essentially mean proximate causation.
Continue Reading Court Does Not Beat Around The Bush and Is Rather Direct In Rejecting Insurer’s Causation Argument In Computer Fraud Claim

Recently, the Ninth Circuit dealt with a case involving a scenario that is becoming all too common. In Ernst & Haas Mgmt. Co., Inc. v. Hiscox, Inc., 23 F.4th 1195 (9th Cir. 2022), a property management company’s accounts payable clerk received several e-mails from her supervisor instructing her to pay some invoices. Unbeknownst to the clerk, these e-mails did not originate with her supervisor, but were actually part of a fraudulent scheme to elicit fraudulent bank transfers. The clerk paid off hundreds of thousands of dollars in “invoices” before becoming suspicious but, by then, it was too late and the damage was done.
Continue Reading A Win for Policyholders Who Are Victims of Fraudulent Bank Transfer Schemes

Following a bench trial, the United States District Court for the Eastern District of Virginia found in The Cincinnati Insurance Co. v. The Norfolk Truck Center that a commercial truck dealer’s social engineering loss arose directly from a computer, thereby triggering the dealer’s computer fraud coverage, notwithstanding that the scheme involved numerous non-computer acts in the causal chain of events.  A copy of the decision may be found here.
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Continue Reading EDVA Finds Computer Fraud Occurred “Directly” From a Computer Despite Numerous Non-Computer Acts in the Causal Chain of Events

Phishing has been around for decades.  But now, the long-lost ancestor claiming to be a foreign prince is stealing more than your grandmother’s savings.  Phishers are targeting corporations—small and big, private and public—stealing sensitive data and money.  When Policyholders take the bait, they had better have a tailored insurance policy to keep their insurers on the hook as well.
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Continue Reading Go Phish: Texas Lawsuit Highlights Need for Tailored Cyber Policies

The Hunton Andrews Kurth insurance recovery team secured a victory for firm client, The Children’s Place (“TCP”), obtaining a ruling from a New Jersey federal court in The Children’s Place, Inc. v. Great Am. Ins. Co., 2019 WL 1857118 (D.N.J. Apr. 25, 2019), in which the court allowed TCP to seek insurance coverage for a “social engineering scheme” that defrauded the company of $967,714.29.
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Continue Reading Hunton Insurance Lawyers Secure Win For Socially Engineered Computer Fraud Loss

In a recent post, we discussed the Sixth Circuit’s holding in American Tooling Center, Inc. v. Travelers Casualty and Surety Co. of America, No. 17-2014, 2018 WL 3404708 (6th Cir. July 13, 2018), where the Sixth Circuit reversed the district court’s summary judgment for the insurer, finding coverage under its policy for a fraudulent scheme that resulted in a $834,000.00 loss. The insurer, Travelers, has now asked the Court to reconsider its decision.
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Continue Reading Insurance Carriers Tell Circuit Courts To Reconsider Holdings For Coverage In Cybercrime Suits

The Sixth Circuit, in American Tooling Center, Inc. v. Travelers Casualty and Surety Co. of America, No. 17-2014, 2018 WL 3404708 (6th Cir. July 13, 2018), reversed the District Court’s grant of summary judgment in favor of the insurer in a dispute over coverage for a social engineering scheme. The policyholder, American Tooling, lost $800,000 after a fraudster’s email tricked an American Tooling employee into wiring that amount to the fraudster.
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Continue Reading Second Major Policyholder Win For Social Engineering Schemes

On May 10, 2018, the Eleventh Circuit Court of Appeals affirmed a Northern District of Georgia decision barring coverage for a loss claimed to arise under a “Computer Fraud” policy issued by Great American Insurance Company to Interactive Communications International, Inc. and HI Technology Corp. Interactive Commc’ns Int’l, Inc. v. Great Am. Ins. Co., No. 17-11712, 2018 WL 2149769 (11th Cir. May 10, 2018).  InComm sells “chits,” each of which has a specific monetary value to consumers who can redeem them by transferring that value to their debit card.  To redeem a chit, a consumer dials a specific 1-800 number and goes through a computerized interactive voice system.  InComm lost $11.4 million when fraudsters manipulated a glitch in the system by placing multiple calls at the same time.  This allowed consumers to redeem chits more than once.  InComm sought coverage for these losses under its “Computer Fraud” policy.
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Continue Reading Eleventh Circuit Computer Fraud Decision Highlights Policy Wording Pitfalls